Tutorial Solutions Week 2 S1 2018.docx - Tutorial solutions...

ECF1100 MICROECONOMICS SEMESTER 1 2017Tutorial solutionsWEEK 2: Introduction to economicsWritten answers to problems 1 and 2 of chapter 1 + problems 4 and 5 of chapter 2 +problem 5 of chapter 3.Extra question: If trade is good thing then why are some countries actually worse off as a result of free trade?Chapter 1 (problems 1 and 2)Q1a.A family deciding whether to buy a new car faces a trade-off between the benefit of the carand other things they might want to buy. For example, buying the car might mean they must give up going on a holiday for the next two years. So the economic cost of the car is the family’s opportunity cost in terms of what they must give up.b.For a politician deciding whether to increase spending on national parks, the trade-off is between parks and other spending items or tax cuts. If more money is spent on national parks, that may mean less spending on national defence or on the police force. Or, instead of spending more money on national parks, taxes could be reduced.For education purposes

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c.When a company director decides whether to open a new factory, the decision is based on whether the new factory will increase the firm’s profits compared to other alternatives. For example, the company could upgrade existing equipment or expand existing factories. The bottom line is ‘Which method of expanding production will increase profits the most?’d.In deciding how much to prepare for a lecture, a professor faces a trade-off between the value of improving the quality of the lecture compared to other things they could do with her time, such as working on additional research.

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